Pricing and Hedging of Contingent Claims in Term Structure Models with Exogenous Issuing of New Bonds
AbstractIf calibrated to an observed term structure of interest rates that only covers a finite range of times-to-maturity an HJM-model of the term structure of interest rates will eventually die out in finite time as bonds reach maturity. This poses problems for the pricing and hedging of certain contingent claims. Therefore, we extend the HJM-model in such a way that it lives on an arbitrary time horizon and possesses term structures that cover a constant finite interval of times-to-maturity. We consider the pricing and hedging of contingent claims in this framework.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 397.
Date of creation: Jan 1997
Date of revision:
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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Term Structure of Interest Rates; Issuing of Long Term Bonds; Incomplete Markets; Minimal Martingale Measure; Option Pricing;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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